copper

Last year many analysts predicted that supply would catch up and so the copper price would fall. It has not happened in 2005.

It is now predicted not to happen in 2006.


Maybe in 2007



Definately in 2009....


So BHPers go for it....


My thanks to a subscriber for this highly informative blockbuster (50-page) report by Macquarie's fine research team, which includes some very useful share reviews. It's posted in the Subscriber's Area but here is a brief section:
A very extended cycle
We continue to be blown away by the longevity of the upcycle in copper. A year ago, we believed that supply was responding quickly enough to see copper prices peaking by the middle of 2005. However, supply has failed to arrive as planned, leaving the copper market in deficit, and prolonging the bull market.
Supply is just not coming through quickly enough, and it is increasingly looking as though it will take a major negative demand event to bring an end to the bull market in copper.
Demand - wild swings, but generally strong
A major catalyst of the strong performance in copper prices in recent years has been the acceleration in demand growth which has taken place since the early 1990s. The emergence of China as a major copper consumer has helped to drive extremely strong demand growth - at rates which we expect to continue at close to 4% per year through to the end of the decade. This represents a return to the kind of growth rates experienced by the copper industry in the period from 1950 to 1973.
Demand in the world ex China has experienced wild swings in the past two years, booming in 2004 and falling in 2005. We have been expecting a strong bounce back in 2006, with demand in the world ex China expected to grow by nearly 5% - and early signs suggest that this growth is coming through. With China expected to record another year of around 10% growth, we expect world demand to grow by around 6% in 2006. Over the next five years, we expect world copper demand to grow by 4-4.5% per year, adding 700-900,000t to demand each year, with China accounting for around half of the growth.
A delayed supply response
Last year saw an enormous amount of supply disruption in copper as a series of strikes, mine production problems, equipment delays and lower ore grades hit production. The first quarter of 2006 has seen a continuation of these problems, which are having a substantial impact on our production forecasts and are tightening up the concentrates market.
Over the past six months we have cut our 2006 mine production forecasts by nearly 500,000t, and our refined production forecasts by just over 500,000t. Over the same period our demand forecasts have been virtually unchanged. The cuts in our production forecasts have been enough to swing our expected refined market balance from surplus (380,000t) to deficit (140,000t), which has had an enormous impact on our price expectations.
Another deficit in 2006
With copper inventories having been drawn down to bare minimum levels in 2005, it is questionable whether the market can absorb another deficit this year. However, we simply cannot find enough additional supply to meet our demand growth forecasts for this year. As a result, any pullback in prices appears to have been pushed back for at least another year.
With stocks at such low levels, forecasting likely price outcomes has become extremely difficult. With such a chronic shortage, and consumption seemingly only impacted at the margin by price, it would be wrong to suggest that prices are not "fundamentally justified".
Prices are just having to go high enough to cause rationing of the scarce available supply. Even with a forecast surplus in 2007 (120,000t), stocks are expected to remain below three weeks of consumption through 2007. It is not until 2009 that we forecast stocks to get above four weeks of consumption - and on our forecasts they remain well below comfortable levels through to the end of the decade.